Insurance and Tax Shock: The Two Line Items Killing 2026 Multifamily Deals
Short answer: Insurance and property tax sink more 5–20 unit deals than rate hikes do. Underwrite insurance at a real binder quote — not the seller's premium — and model reassessment-on-sale taxes as your year-2 number. Then test DSCR at those higher figures. If it breaks there, the deal breaks.
Mortgage rates get the headlines. Insurance and property tax get the deals.
Why is insurance up 15–30% YoY in storm-exposed metros?
If you're underwriting in Tampa, Houston, Charleston, or any coastal metro, the seller's insurance line is fiction. Carriers have either pulled out or repriced. Real numbers we're seeing in 2026:
- Tampa, FL — 8-unit garden, +28% YoY
- Charleston, SC — 12-unit, +24% YoY
- Houston, TX — 10-unit, +21% YoY
- Phoenix, AZ — 16-unit, +9% YoY
The right move: underwrite at quote, not at the seller's existing premium. Get a real binder quote during due diligence, not after.
How does reassessment-on-sale create a year-2 tax surprise?
In many states (TX, FL, GA, NC among them), the property is reassessed at sale price the year after closing. If the seller's been holding for 8 years at $400/unit/year tax, and you're paying 70% above their basis, your year-2 tax bill is roughly double what's on the seller's T-12.
How to underwrite it:
- Pull the assessor's "current assessed value" and "millage rate."
- Multiply your purchase price × the assessment ratio × the millage rate.
- Use that figure as year-2 tax in your model. Use the seller's number for year 1.
- Test DSCR at the year-2 number. If it breaks, the deal breaks.
A quick rule of thumb
For coastal storm metros, take the seller's insurance line and multiply by 1.25. For reassessment-on-sale states, take a weighted average of (year-1 seller tax × 0.5) + (year-2 underwritten tax × 0.5). This is roughly what an honest broker would tell you — which is to say, what no broker tells you.
The structural fix
For coastal deals, build a 5% NOI cushion above DSCR. For reassessment-on-sale deals, lower your offer 3–5% to absorb the year-2 tax shock. Both are forms of paying yourself first.
PathIQ lets you split insurance and taxes into year-1 vs year-2 inputs precisely so the model reflects the reassessment and the carrier repricing. The DSCR card shows both states. If year-2 DSCR drops below 1.10, the badge turns red. Pay attention to that badge.
Frequently asked questions
Why do insurance and taxes kill more deals than rate hikes?
Rates move the debt-service line, but insurance and property tax move NOI directly — and in storm-exposed and reassessment-on-sale markets those two lines can jump sharply after closing. A deal that pencils on the seller's T-12 can go DSCR-negative in year 2 once the real premium and reassessed tax bill land.
Should I use the seller's insurance premium when underwriting?
No. In coastal metros the seller's insurance line is often fiction because carriers have pulled out or repriced. Underwrite at a real binder quote you obtain during due diligence, not at the seller's existing premium.
How do I estimate the year-2 property tax after a reassessment?
Pull the assessor's current assessed value and millage rate, then multiply your purchase price by the assessment ratio and the millage rate. Use that figure as your year-2 tax, keep the seller's number for year 1, and test DSCR at the year-2 figure.
What cushion should I build for coastal or reassessment-on-sale deals?
For coastal storm metros, build a 5% NOI cushion above DSCR. For reassessment-on-sale states, lower your offer 3–5% to absorb the year-2 tax shock. Both are ways of paying yourself first before the surprise arrives.